CATCHWORDS Bankruptcy - Deed of arrangement - Application to terminate deed or declare it void - Whether meeting of creditors called in accordance with statutory requirements - Whether major creditor given notice of meeting of creditors - Sufficiency of minutes of meeting of creditors - Whether material particular omitted from statement of affairs - Whether Court satisfied that deed cannot be proceeded with without injustice to the creditors - Whether for "any other reason" the deed ought to be terminated. Bankruptcy Act 1966, ss.222, 236 JOHN EMMANUEL CHIRAGAKIS v. DEPUTY COMMISSIONER OF TAXATION No. NSW 303 of 1985xX Neaves J. 5 February 1986 Canberra Counsel for the applicant : Mr C. Darvall., Q.C. and Mr P. Urquhart Solicitor for the applicant : Australian Government Solicitor Counsel for the debtor : Mr I.B. Ward. Q.C. and Mr S.L. Walmsley Solicitors for the debtor > Elringtons Date of hearing : 19 December 1985 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE No. NSW 303 of 1985xX OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY Re: JOHN EMMANUEL CHIRAGAKIS A Debtor Ex parte: DEPUTY COMMISSIONER OF TAXATION A Creditor MINUTE _OF ORDER JUDGE MAKING ORDER : Neaves J. DATE OF ORDER : S Pebruary 1986 WHERE MADE Canberra THE COURT: l. Orders that the deed of arrangement executed by u) John Emmanuel Chiragakis, the debtor, on 23 October 1985 is terminated. Makes a sequestration order against the estate of the debtor. Declares that Mr Richard Campbell Brien, a registered trustee, is the trustee of the estate of the debtor. Orders that the costs of the applicant of and incidental to the application be taxed and paid out of the estate of the debtor as if they were the costs of a petitioning creditor. Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules. Ueto IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE No. NSW 303 of 1985xX OF NEW SOUTH WALES AND THE wywr~wyvrvewrvvvy AUSTRALIAN CAPITAL TERRITORY Re: JOHN EMMANUEL CHIRAGAKIS A Debtor Ex parte: DEPUTY COMMISSIONER OF TAXATION A Creditor CORAM: Neaves J. DATE: 5 February 1986 REASONS FOR JUDGMENT The Deputy Commissioner of Taxation ("the applicant"), a creditor of John Emmanuel Chiraqakis ("the debtor"). has applied to the Court for an order that a deed of arrangement executed by the debtor on 23 October 1985 pursuant to Part X of the Bankruptcy Act 1966 (Cth) ("the Act") be declared void under s.222 of the Act or be terminated under s.236 thereof. "The applicant also seeks a summary sequestration order against the estate of the debtor pursuant to sub-s.222(7) or sub-s.236(3), as the case may be. Ww The grounds of the application are - (a) that there is a doubt whether the deed of arrangement was entered into in accordance with Part X or complies with the requirements of that Part (sub-s.222(1)); (b) that the Court should be satisfied that the debtor omitted a material particular from the statement of his affairs under s.195 (sub.s.222(4)(b)); (c) that the deed of arrangement cannot be proceeded with without injustice to the creditors (sub-s.236(1)(b)); (d) that there are "other reasons" within the meaning of that expression in sub-s.236(1)(c) why the deed of arrangement ought to be terminated. The deed of arrangement was executed in the following circumstances. On 18 September 1985 the debtor, pursuant to s.188 of the Act, signed an authority authorising Mr Brian Henry Kahlefeldt, a registered trustee, to call a meeting of his creditors for the purposes of Part X of the Act and to take over control of his property. On 23 September 1985 Mr Kahlefeldt consented, in writing, to exercise the powers conferred by the authority. Pursuant thereto. arrangements were made for the holding on 16 October 1985 of a meeting of the debtor's creditors. It will be necessary to consider in some detail the arrangements that were in fact made as one of the contentions of the applicant is that no notice of the nett Non SAL ee aay mo oe ae ET he ite 5 t 3 ed ey meeting was received. However, it is convenient to defer consideration of that subject until later in these reasons. On 16 October 1985 the debtor made a statutory declaration in accordance with Form 35 in Schedule 1 to the Bankruptcy Rules verifying an annexed statement of affairs in accordance with Form 1l. The debtor declared that the annexed statement of affairs contained, to the best of his knowledge and belief, a true and complete statement of his affairs as at 16 October 1985. The statement disclosed an amount of $489,882 owing to four unsecured creditors and assets with an estimated value of $20,946 resulting in a deficiency of $468,936. The assets disclosed consisted of cash at bank ($720), household furniture and effects situated at 11 Torres Street, Red Hill, A.C.T. ($13,000) anda share in E.E. Goldtraders Partnership ($7,226). The creditors disclosed, and the amounts of their respective debts, were: Deputy Commissioner of Taxation (income tax) $437,139.00 Elringtons (professional services) 1,513.80 Plaza Clinic Pty. Limited (loan) 50,505.00 Rolfe, Hall and Hollands - (professional services) 725.00 $489,882.80 The amount shown as due to the Deputy Commissioner of Taxation was described as an estimate only. There is, however, evidence before the Court that on18 September 1985 the debtor was indebted to the Commissioner of Taxation in the sum of ook Sede of Au Wyte ws Rv teste Se. Ee $459,658.85 and there 1s no evidence of any payments having been made by the debtor between that date and 16 October 1985. The meeting of creditors took place at 12 noon on 16 October 1985. Those present were the debtor, Mr Kahlefeldt, Mr T.M. Clarke of the firm of Elrinagtons, Solicitors, Mr G.G.A. Hollands of the firm of Rolfe, Hall and Hollands, Accountants, and Mrs Louise Chiragakis, the wife of the debtor. According to the attendance sheet attached to the minutes of tne meeting Mr Clarke was present "in person and proxy for partners" of Elringtons, Mr Hollands was present "in person and proxy for partners" of Rolfe, Hall and Hollands and Mrs Chiragakis was present "in person and by proxy for" Plaza Clinic Pty. Limited. Again, according to the minutes, resolutions in the following terms were moved by Mr Clarke. seconded by Mr Hollands, and carried - "That the debtor be required to enter into a Deed of Arrangement identical to the precedent presented to the meeting with clause (b) to read: 'the debtor further agrees that over a period of three years he will pay to the Trustee the sum of $30,000 (thirty thousand dollars) such sum to be paid by three annual instalments of $10,000 (ten thousand dollars) on the 16th October 1986, 16th October 1987 and 16th October 1988 except that the debtor shall have the right to accelerate the rate of such payments." "That Brian Henry Kahlefeldt be appointed Trustee of the Deed of Arrangement and his remuneration be fixed in respect of himself and his employees at the hourly rates applicable to the grades or . Classifications set out in the scale of fees issued from time to time by the Insolvency Practitioners Association of Australia plus out-of-pocket expenses." "That the remuneration of the Controlling Trustee be fixed in respect of himself and his employees at the hourly rates applicable to the grades or classifications set out in the scale of fees issued from time to time by the Insolvency Practitioners Association of Australia plus out-of-pocket expenses." "Purguant to the provisions of Section 116(2)(b) of the Bankruptcy Act the divisible property of the debtor shall not include the following three icons:- i) One Madonna Kazan ii) One Russian St Nicholas ii1) One Greek Cosmos & Damien." Neither the document referred to in the first of the resolutions set out above as a precedent nor a copy thereof 1s in evidence. The minutes do not record who voted in favour of each of the resolutions. On 23 October 1985 the debtor executed a deed of arrangement in the following terms - "THIS DEED made the 23rd day of October One thousand nine hundred and eighty five in pursuance of Part XK of the Bankruptcy Act 1966 BETWEEN Dr John Chiragakis of 11 Torres Street, Red Hill in the Australian Capital Territy Csicl] (hereinafter called 'the Debtor') of the one part and Brian Henry Kahlefeldt in the State of New South Wales Registered Trustee of the other part (hereinafter called 'the Trustee'): WITNESSETH that - (a) the debtor conveys and assigns to the Trustee all his divisible property within the meaning of Part X of the Bankruptcy Act 1966 UPON TRUST to deal with the same in accordance with Part X of that Act for the benefit of the creditors of the Debtor and as to any surplus after paying in full the several debts and liabilities of the Debtor proved under this Deed together with the costs charges and expenses of or incidental to the execution of the trusts of this Deed (including the remuneration and expenses of the Trustee) UPON TRUST for the Debtor his executors administrators or assigns; (b) the Debtor further agrees that over a period of three years he will pay to the Trustee the sum of $30,000 (thirty thousand dollars) such sum to be paid by three annual instalments of $10,000 (ten thousand dollars) on the 16th October 1986. 16th October 1987 and 16th October 1988 except that the debtor shall have the right to accelerate the rate of such payments; (c)} upon fulfilment of the provisions of this deed the debtor is to be released from all his debts; (ad) this deed is binding on the creditors in accordance with Section 233 of the Bankruptcy Act; (e) this deed is to terminate upon the fulfilment of its provisions by the debtor and the distribution in accordance with the Bankruptcy Act, by the Trustee, of all funds collected pursuant to this deed; (f) the Trustee accepts appointment as trustee of this Deed and the conveyance and assignment of the said property upon the trusts hereinbefore set out." The déed was executed by Mr Kahlefeldt on 31 October 1985. Against that general background it is convenient to turn to the first of the grounds upon which the applicant cv relies, that based on sub-s.222(1) of the Act. The essence of the applicant's argument under this ground is that the meeting of the debtor's creditors was not called in accordance with the requirements of s.194 in that the applicant was not given notice of the meeting. Having consented to exercise the powers conferred by the authority under s.188 signed by the debtor, Mr Kahlefeldt was obliged to "proceed to call a meeting of the debtor's creditors in accordance with" Division 2 of Part X of the Act (sub-s.190(1)). Sub-section 194(2) provides: "The controlling trustee or solicitor calling the meeting shall give to each person who is stated by the debtor to be a creditor and whose business or residential address is known to the trustee or solicitor notice of the meeting by delivering or sending by post to that person a notice in accordance with the prescribed form." The prescribed form is set out as Form 34 in Schedule 1 to the Bankruptcy Rules. Sub-section 194(3) provides: "The controlling trustee or solicitor shall also cause notice of the calling of the meeting to be published, not less than 7 days before the meeting is held, in a newspaper circulating in the locality in which the meeting is to be held and in such other manner (if any) as is prescribed." , not Yi tae iso . en "% A ERT LL, eee 8. No other manner has, in fact, been prescribed. In his affidavit sworn on 13 December 1985 Mr Kahlefeldt states that on 25 September 1985 he signed correspondence and documents concerning the proposed meeting. The correspondence comprised a letter to Elringtons confirming the booking of a room for the meeting, a letter to the editor of the "Sydney Morning Herald" newspaper setting out the text of an advertisement with a request for publication, a letter to the editor of the Australian Government Gazette with a similar request, a letter to the debtor enclosing a notice requiring him to attend the meeting and circular letters addressed "Dear Sir/Madam" reading as follows: "Re: Dr John Chiragakis Attached hereto, in respect of the meeting of creditors of the abovementioned debtor, are the following: -— 1. Notice of meeting of creditors (Form 34). 2. Proof of Debt (Form 15). 3. Appointment of Proxy (Form 43). Should you wish to contact this office in reference to this matter please ask for Mr Michael Jones." The documents signed were the notice to the debtor requiring him to attend the meeting and forms of notice in accordance with Form 34. 9. So far as appears from the evidence the forms of notice in accordance with Form 34 were not, on their face, addressed to any person. Nor were the circular letters under cover of which those notices were to be sent. The notice of the calling of the meeting appeared in the issue of the "Sydney Morning Herald" published on 4 October 1985 but, as appears from the affidavit of Lloyd Neil Masters sworn 21 November 1985, that notice, through inadvertence, was not seen by him as the officer of the Australian Taxation Office charged with the duty of checking for such notices. The notice was not, apparently, drawn to attention by any other means. It may also be mentioned that publication of the notice, the text of which accompanied the appropriate letter signed on 25 September 1985, did not appear in the Commonwealth of Australia Gazette until the issue thereof dated 15 October 1985 which was, in fact, not published until 17 October 1985, the day after the meeting was held. This, however, appears to be of no significance as there is no requirement that notice of a meeting of creditors called pursuant to Part X of the Act be published in the Gazette. Evidence was adduced on behalf of the debtor to establish that one of the circular letters, with its fe "Eee & . : a wend + 10. attachments, was sent post to the applicant. That evidence is contained in the abt idavits of Maree Ann Reardon sworn 13 and 18 December 1985 the affidavit of Jennifer Maree Durham sworn 18 December 1988, Both deponents are, and were at the relevant time, employées of B.H. Kahlefeldt & Co. In her "On instructions from Mr Brian Kahlefeldt I did on the 26th day 'Of September. 1985 enclose in an envelope a notice to the Deputy Commissioner of Taxation, Ben jamin Offices, Belconnen, A.C.T., a copy of which ist annexed hereto and marked with the letter 'A'." + "5 Sete ® ume The annexure marked is a copy of the circular letter to "t which reference has falready been made and a copy of its attachments. Neitneriltne copy of the circular letter nor the x form of notice of the Meeting annexed to the affidavit identify any person as the addfessee. The affidavit also states that & the deponent - a A Te GN et iis a "caused the said'notice to be posted with other mail on the 26th day ef September, 1985", am aes a statement explained in her later affidavit to mean that - ee ST iss "I placed the bac notice in an envelope in our mailing drawer sto be franked and posted by our mailing clerk ongduty". fe Sh site nia EE es . +4 Ps ~n, wf om, an ae a REI : 2 7 3 SPL De ~ see I, il. The deponent further states that she placed the notice in the mailing drawer on 26 September 1985. In her affidavit, Jennifer Maree Durham, states that on 26 September 1985 she was the mailing clerk on duty. The affidavit continues - "3. My practice as mailing clerk is to collect all mail for posting from a mailing drawer and to frank all mail for posting on any one day and then to post the mail through the post office at Temora. 4. The mail placed in the mailing drawer on the 26th September, 1985 was posted by me on that day. 5. All envelopes in which mail is placed and posted have the address of B.H. Kahlefeldt & Co. printed on the front for return 1f unclaimed. 6. I have made a search and the letter has not been found to have been returned to the office of B.H. Kahlefeldt & Co." The letter referred to in par.6 is not otherwise identified but it may be taken that the reference is to the circular letter and its attachments referred to in the affidavits of Maree Ann Reardon. Evidence was adduced on behalf of the applicant to establish that no notice of the meeting had been received in his office at Belconnen in the Australian Capital Territory. ate etlighe otk 12. It appears that no written record is made of the receipt of correspondence or documents relating to matters arising under the Bankruptcy Act 1966. Such correspondence and documentation is referred, on receipt, to the Bankruptcy Section of the office. It is directed to an officer called the bankruptcy clerk whose duty it is to locate the relevant file and deliver the correspondence or documentation to the officer having custody and control of that file or, alternatively, to give the matter the necessary attention himself. Karenne Lee Holland, who occupies the office of Assistant Recovery Manager in the Belconnen Office of the applicant, gave evidence that she had the custody and control of the relevant file at the time and that the notice of the meeting, if it had been received, would have been referred to her. She said she did not receive the notice and that a search of the Belconnen office of the applicant had failed to discover it. I accept the evidence of the witnesses called on behalf of the applicant that no trace can be found of the notice of the meeting of the debtor's creditors. However, to comply with sub-s.194(2) it was only necessary that the notice be sent by post to the applicant and, notwithstanding that the evidence adduced on behalf of the debtor is not entirely satisfactory in that it does not clearly establish that the notice itself, or the envelope in which it was placed, was addressed to the Deputy Commissioner of Taxation at his foe wt Oe MEE gt et og ea Be CSTs ee cat er 13. Belconnen address, I am not prepared to find that the notice was not properly posted so as to comply with the requirements of sub-s.194(2). The fact that the notice was not received by the applicant 1s, however, a matter proper to be taken into account in considering whether the deed should be terminated under s.236. I turn to the other grounds relied upon by the applicant but, in order to consider those grounds, further factual matters must be stated. The debtor is a medical practitioner, a specialist obstetrician and gynaecologist. For some years before the year of income which commenced onl July 1980 he carried on a medical practice in his own name and on his own account. The practice was carried on at Phillip in the Australian Capital Territory from premises which he leased during the earlier years from his wife, Louise Chiragakis, and in later years from a company, Luristan Pty. Limited. That company was incorporated in the Australian Capital Territory on 17 March 1976, 1ts only shareholders and directors being the debtor and his wife. The debtor, of course, vacated the office of director upon the execution of the deed of arrangement by virtue of the operation of s.222 of the Companies Act 1981 _ (Cth). Pn 14. The debtor earned substantial fees from his practice and at 30 June 1980 a sum in excess of $285,000 was due and payable by him to the Commissioner of Taxation for income tax assessed under the Income Tax Assessment Act 1936 in respect of the financial years ended 30 June 1975, 1976, 1977, 1978 and 1979. The debtor had lodged objections against those assessments which were subsequently disallowed and, at the debtor's request, referred to a Board of Review. The debtor subsequently withdrew the objections and the assessments were confirmed on 12 July 1985. On 5 June 1980 the debtor travelled to the United States of America for three weeks to attend a medical conference and, as he said, to investigate employment opportunities. On his return, a situation was brought about in which the debtor continued to attend to patients but as a salaried employee of a company called Ardgowan Pty. Limited (which had its name changed to Plaza Clinic Pty. Limited on 11 July 1980). That company had been incorporated in the Australian Capital Territory on 31 August 1976. Its sole shareholders and directors at 30 June 1980 were the debtor's wife and Mr T.M. Clarke, a member of the firm of solicitors who at all material times acted for the debtor. The arrangements involved the execution of - (a) a deed between Ardgowan Pty. Limited and Luristan Pty. Limited establishing the Clinic Unit Trust; and 15. (b) a deed between Timothy Michael Clarke and Luristan Pty. Limited establishing the T.M. Clarke Settlement, and the utilisation of the Cherry Trust which had been established by a deed dated 15 February 1976, the settlor being William Coyle and the trustee Luristan Pty. Limited. Luristan Pty. Limited is, and was at all relevant times, the holder of all the issued units (ten) in the Clinic Unit Trust. According to the evidence of Mr G.G.A. Hollands, the company held those units as trustee for the T.M. Clarke Settlement. Ardgowan Pty. Limited (Plaza Clinic Pty. Limited) is the trustee of the Clinic Unit Trust. Luristan Pty. Limited is, and was at all relevant times, the trustee and the "nominator" of the T.M. Clarke Settlement. The beneficiaries of that settlement are expressed in the deed to be The Smith Family, The New South Wales State Cancer Council, the Australian Red Cross, the debtor, any company of which the debtor is a shareholder, any trust of which the debtor is a beneficiary and such persons or limited liability companies (with some exceptions to which it is umnecessary to réfer) as the nominator shall appoint. Clause 3 of the deed provides for the application of the income of the trust and is in the following terms - pea 16. "3. (a) Until the vesting date the trustee shall stand possessed of the trust fund upon trust as to the income derived therefrom during each year for such one or more of the beneficiaries living or existing at the time of the determination hereinafter mentioned to the exclusion of the other or others of them and in such shares and proportions as the trustee in his absolute discretion shall at any time during the year determine - and to the intent that any beneficiary in whose favour such determination is made shall be absolutely and presently entitled to the share of income allocated to him her or it pursuant to such determination. (b) In the event that the trustee shall determine prior to the 30th June in any financial year that the power given by sub-clause (a) of this Clause should not be exercised in respect of the income derived by the trust fund in the then current financial year and that the said income should be accumulated then the trustee shall accumulate the said income and it shall form part of the capital of the trust fund. {c) In the event that the trustee shall fail . to make any of the determinations referred to in sub-clauses (a) or (b) of this Clause as to the distribution of the income derived from the trust fund for any year or any part of that income prior to midnight on the last day of that year the trustee shall hold that income or that part thereof (as the case may be) upon trust for each of the beneficiaries then living or existing in equal shares as tenants in common to the intent that such beneficiaries shall be absolutely and presently entitled thereto." Luristan Pty. Limited is also given power by the deed to remove the trustee and appoint a new trustee (cl1.19(a)) and to vary or amend any of the provisions of the deed (c1.25). le MAE | , " . pte - —_ eA ate - ' ay a Nee eS 2 preys ed 5 17. Luristan Pty. Limited is, and was at all relevant times, also the trustee of the Cherry Trust. The debtor is described as "the principal" in the relevant trust deed. The beneficiaries thereunder are the debtor, his wife and their three children, Alexandra, Georgina and Timothy. The trustee may pay or apply the whole or any part of the income of the trust fund for or towards the maintenance, education, advancement or benefit of all or such one or more of the beneficiaries to the exclusion of the other or others of them and in such shares as the trustee in its absolute discretion may determine (cl.2). With the consent of the principal, the trustee may alter, modify or revoke any of the trusts and appoint such new trusts in such manner or form as the trustee shall in its absolute discretion think fit (cl.16(iii)). The principal may require the trustee to resign (cl1.17(4)) and may appoint a new trustee (c1.17(4)). Since 1 July 1980 the medical practice has been carried on under the business name "Plaza Clinic", that business name having been registered in the name of Luristan Pty. Limited on 18 June 1980 and transferred to Ardgowan Pty. Limited (Plaza Clinic Pty. Limited) on 30 June 1980. The practice has been carried on from the same premises as before, the debtor providing the same medical services and using the same patients' records as previously. 8. During each of the financial years ended 30 June 1981, 1982, 1983 and 1984 the fees resulting from the treatment of patients by the debtor have been treated as having been paid to Plaza Clinic Pty. Limited as trustee of the Clinic Unit Trust. Some details of the financial affairs of the Clinic Unit Trust in each of the financial years mentioned are as follows - Year ended 30 June 1981 1982 1983 1984 $ $ § $ Fees received 215,892 237,954 276,042 326,141 Other income bal 3,840 2,012 9,281 Gross income 215,892 241,794 278,054 335,422 Less expenses 121,445 145,060 178,740 185,133 Net income 94,447 96,734 99,314 150,289 In each of the financial years of the Clinic Unit Trust was Settlement. mentioned, the total net income distributed to the T.M. Clarke In each of the financial years ended 30 June 1981 to 30 June 1984 inclusive the amounts received from the Clinic Unit Trust by the T.M. Clarke Settlement were distributed as follows -$ Cherry Trust 94,147 The Smith Family 100 The New South Wales Cancer Council 100 Australian Red Cross 100 94,447 $ 96,433100 96,733 1983 1984 $ $ 99,014 150,289 100 - 100 - 99,314 150,289 | 19. Some details of the financial affairs of the Cherry Trust in each of the financial years ended 30 June 1981 to 30 June 1984 are as follows - Year ended 30 June 1981 1982 1983 1984 $ $ $ $ Amounts received from T.M. Clarke Settle- ment 94,147 96,434 99,015 150,289 Service fees received from Clinic Unit Trust 33,453 35,340 39,544 39,757 Other Income = 4,840 4,639 1,602 Gross income 127,600 135,614 143,198 191,648 Less expenses 26,751 26,868 31,066 41,028 Net income 100,849 108,746 112,132 150,620 In each of those years the net income of the trust was distributed as follows. Year ended 30 June 1981 1982 1983 1984 $ $ $ $ The debtor 10,849 74,746 - 20,000 Louise Chiragakis - 10,000 9,000 24,120 Alexandra Chiragakis 30,000 8,000 34,377 35,500 Georgina Chiragakis 30,000 8,000 34,377 35,500 Timothy Chiragakis 30,000 B,000 34,377 35,500 100,849 108,746 112,131 150,620 The amounts shown as having been distributed to the children have been credited to their respective accounts in the trust but only a part thereof has in fact been paid to them or for their benefit. The balance sheet of the Cherry Trust at 31 October 1984 shows as a liability - "Unsecured Loans (Chiragakis Family - except J. Chiragakis) $249,555" 20. This amount, as Mr Hollands explained, represented the amounts allocated but not paid over to the children. That balance sheet also shows as an asset - "Unsecured Loans - (Related Parties) $215,335" That asset represents moneys lent back, through the T.M. Clarke Settlement, to the Clinic Unit Trust. As at 31 October 1984 the assets of the Clinic Unit Trust included unsecured loans to the debtor ($50,554) and his wife ($59,511) totalling $110,065. It is clear from the recitation of the above facts that, when the debtor prepared the statement of his affairs under s.195 of the Act on 16 October 1985, he was the owner of one share in Luristan Pty. Limited yet he omitted to disclose his ownership thereof in the statement of affairs. Having regard to the degree of control that is accorded to Luristan Pty. Limited under the deeds establishing the Clinic Unit Trust, the T.M. Clarke Settlement and the Cherry Trust, there can be no question but that the omission was a material one though, on the evidence before me, I accept that the omission appears to have occurred through inadvertence and not as the result of a deliberate attempt to mislead. I am unable to 21. accept the submission by counsel for the debtor that, as all the persons who attended the meeting of creditors - the debtor's solicitor, his accountant and his wife - were aware that the debtor owned the share, the omission was not material. The ground based on sub-s.222(4)(b) of the Act is, therefore, established. In support of his submission that the deed of arrangement cannot be proceeded with without injustice to the creditors (sub-s.236(1)(b)) and that there are "other reasons" why the deed ought to be terminated (sub-~s.236(1)(c)), counsel for the applicant referred to the circumstances in which the arrangements for the carrying on of the medical practice were changed at the end of the financial year ended 30 June 1980. He referred particularly to the circumstance that the arrangements involved the creation of the Clinic Unit Trust and the T.M. Clarke Settlement at atime when the debtor was indebted to the applicant in a sum in excess of $285,000 and to the manner in which the fees generated by the medical practice have been dealt with under the new arrangements, some details of which are set out earlier in these reasons. To proceed with the deed of arrangement was said to be unjust to the applicant as the major creditor because to do so would preclude proceedings being taken under sub-s.121(1) of the Act to declare the arrangements void on the basis that they involved a disposition of property with intent to defraud creditors, proceedings which could be brought by a trustee in bankruptcy if he were so advised. .e 'tebe rt eer, : bg Nee ga Rb UE eR. gt APs Hecht ness we OS s erg ft erat at SS 22. Counsel for the debtor submitted that it was not sufficient for the applicant to suggest the possibility of proceedings under sub-s.121(1) of the Act - the applicant had to show that there was a real likelihood that such proceedings would succeed. The facts put before the Court, it was submitted, did not provide a sound basis for suggesting that the arrangements involved a disposition of property or that any disposition of property that may have been involved was made with antent to defraud creditors. I agree that the material before the Court provides no basis upon which to express an opinion upon the question whether there is sufficient evidence available to justify the institution of proceedings under sub-s.121(1) or as to their likely outcome and it would be improper to do s0. But the issue in this proceeding 1s whether the deed should be set aside to enable the matter to be pursued. In the light of the matters to which reference has been made, I am satisfied that a full investigation of all the circumstances 1s warranted and that this can only be done to any effect if the deed is set aside and a sequestration order made. Counsel for the applicant also pointed to the "availability, in the case of bankruptcy, of the provisions of sub-s.131(2) of the Act which empowers the Court, upon the 23. application of the trustee, to order that all, or such part as the Court thinks fit, of the income of a bankrupt be paid to the trustee for the benefit of the bankrupt's creditors. Counsel submitted that the Court might well take the view that the debtor could make a greater contribution to his estate for the benefit of his creditors than the sum of $30,000 payable in three annual instalments on 16 October 1986, 1987 and 1988 as provided for in cl.3 of the deed of arrangement. It was also submitted that, even if it could be said that there had not been a disposition of property with intent to defraud creditors so as to attract the operation of sub-s.121(1), it would be appropriate for the Court, on the hearing of an application under sub-s.131(2), to have regard to the extent to which the debtor has benefited, and 1s likely in the future to benefit, under the trusts to which reference has already been made. He referred to Lyford v. Levit (1984) 2 F.C.R. 264. Counsel for the debtor submitted that there was no reasonable basis to support the proposition that the Court would be likely to make an order under sub-s.131(2) requiring the debtor to make a greater contribution for the benefit of his creditors than that already provided for in the deed of arrangement. I do not agree. It is sufficient for present purposes to say that the circumstances disclosed by the evidence are such that a trustee in bankruptcy might well take the view that an application under sub-s.131(2) should be made. I think that appropriate orders should be made so as to afford him the opportunity to do so if he be so advised. le 23. application of the trustee, to order that all, or such part as the Court thinks fit, of the income of a bankrupt be paid to the trustee for the benefit of the bankrupt's creditors. Counsel submitted that the Court might well take the view that the debtor could make a greater contribution to his estate for the benefit of his creditors than the sum of $30,000 payable in three annual instalments on 16 October 1986, 1987 and 1988 as provided for in cl.3 of the deed of arrangement. It was also submitted that, even if it could be said that there had not been a disposition of property with intent to defraud creditors so as to attract the operation of sub-s.121(1), it would be appropriate for the Court, on the hearing of an application under sub-s.131(2), to have regard to the extent to which the debtor has benefited, and is likely in the future to benefit, under the trusts to which reference has already been made. He referred to Lyford v. Levit (1984) 2 F.C.R. 264. Counsel for the debtor submitted that there was no reasonable basis to support the proposition that the Court would be likely to make an order under sub-s.131(2) requiring the debtor to make a greater contribution for the benefit of his creditors than that already provided for in the deed of arrangement. I do not agree. It is sufficient for present Purposes to say that the circumstances disclosed by the evidence are such that a trustee in bankruptcy might well take the view that an application under sub-s.131(2) should be made. I think that appropriate orders should be made so as to afford him the opportunity to do so if he be so advised. 24. A further matter relied upon by the applicant involves an examination of what took place at the meeting of creditors held on 16 October 1985. The minutes of the meeting are quite unsatisfactory in that they do not show that the resolution requiring the debtor to enter into the deed of arrangement was passed as a special resolution as sub-s.204(1) of the Act requires. Mr Kahlefeldt, however, gave oral evidence that Mr Clarke, Mr Hollands and Mrs Chiragakis all voted in favour of that resolution. He said that Mrs Chiragakis had voted as proxy for Plaza Clinic Pty. Limited though he was. unable to produce the form of proxy duly executed by that company. Mrs Chiragakis gave evidence that when she went to the meeting she handed in a document which she said had been prepared by the accountant and which she signed and to which she affixed the seal of Plaza Clinic Pty. Limited. She agreed, in cross-examination, that there had been no meeting of the directors of the company to authorise the affixing of the company's seal to any proxy document. On the evidence I am satisfied that Mrs Chiragakis was not entitled to vote at the meeting of creditors held on 16 October 1985. The consequence of this finding is that the resolution requiring the debtor to execute the deed of arrangement was passed on the votes of the debtor's solicitors and accountants whose debts totalled only $2,039 out of a total indebtedness of over $489,000. This is a most unsatisfactory state of affairs. 25. By reason of the various matters to which I have referred, I am of opinion that the applicant has established grounds under pars(b) and (c) of sub-s.236(1) of the Act for terminating the deed of arrangement. An order may not be made on the ground specified in par.(c) of that sub-section unless the Court is satisfied that it would be in the interests of the creditors to do so but I have no doubt on that score and I so find. Although I have already expressed the view that the applicant has also established a ground for declaring the deed void undér sub-s.222(4)(b), I think it is more appropriate, in the circumstances of this case, to proceed under s.236 than under s.222. I, therefore, order that the deed of arrangement executed by the debtor on 23 October 1985 be terminated. The question then arises whether a summary sequestration order should be made against the estate of the debtor pursuant to sub-s.236(3) of the Act. There is ample material before the Court to justify the making of such an order and I propose to do so. Sub-section 156A(3) of the Act provides, inter alia, that where, at the time when a debtor becomes a bankrupt, a registered trustee has, under sub-s.156A(1), consented to act as the trustee of the estate of the debtor and the consent has ' 26. not been revoked, the registered trustee becomes, at that time, by force of the sub-section, the trustee of the estate of the bankrupt. Mr Richard Campbell Brien, a registered trustee, has, by instrument dated 18 December 1985 signed by him and filed with the Registrar pursuant to sub-s.156A(1), consented to act as the trustee of the estate of the debtor in the event that he becomes a bankrupt. Sub-section 156(3) operates, according to its tenor, to make Mr Brien the trustee of the bankrupt estate and I so declare. It is appropriate to order that the costs of the applicant be taxed and paid out of the estate of the debtor as if they were the costs of a petitioning creditor. I certify that this and the preceding 25 pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Neayes. Ke Associate Dated: 5 February 1986 re arn. ' ~ so vir